tv Nightly Business Report PBS June 30, 2011 7:00pm-7:30pm EDT
>> susie: wall says good bye and good riddance to a volatile second quarter, and looks ahead to the second half of the year. >> and you want to be able to just say to yourself, "i realize i'm going to have to ride out this period." >> tom: the market outlook as the second half of the year gets underway. it's "nightly business report" for thursday, june 30. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> tom: good evening and thanks for joining us. wall street put the wraps today on a rocky second quarter. stocks were buffeted by some major headwinds. from japan's earthquake and tsunami in march to the continued unrest in the middle east and europe's ongoing debt woes, as the quarter comes to a close, susie, investors had their hands full. >> susie: still, tom, u.s. stocks closed out the last trading session of the second quarter with more buying. the dow rose 152 points, the nasdaq added 33, and the s&p 500 was up 13. the rally over the past couple
of sessions helped the dow turn positive on the quarter-- it was up a fraction, but the nasdaq and the s&p slipped slightly. >> tom: the best stock sector for the second quarter during all the volatility was healthcare-- that group was up over 7%. and the worst-- financials, down 6%. as erika miller reports tonight, investors have their pick of worries as the second half of the year gets underway. >> reporter: it's sunny without a cloud in the sky. but it is as difficult to predict the weather as it is the direction of the stock market. investment strategist sam stovall is forecasting stormy weather for stocks. but he does think the major averages will end the year a bit higher than they are today. >> i'm optimistic about the second half, but with a lower- case "o". our expectation is that, while the economy probably has shifted into a lower gear, we don't think that there's a great likelihood of us slipping back into recession.
>> reporter: bulls hope the economic recovery will start to pick up in the second half of the year, boosting corporate profits. but there are still plenty of risks around the globe. in the middle east, there is the possibility of spreading unrest. >> if you have additional libya-esque type countries, where their production gets shut in-- such as algeria or nigeria- - then their spare capacity could go away very quickly. then, that could very rapidly put upward pressure on oil prices. >> reporter: in europe, the sovereign debt crisis is far from over. and there are worries about an economic slowdown in china and other emerging markets, as market strategist scott wren explains. >> a lot of these emerging economies have seen a little bit more inflation than we've seen here. they've tried to hike interest rates to stem some of that pressure. there's a lot of speculation out there right now that china is going to experience a hard landing >> reporter: and don't forget the u.s., where the unemployment rate remains stubbornly high and the housing market is on shaky ground. so what should stock investors do?
few analysts recommend bailing out. >> over the course of the next six months, the market's likely to be volatile. you want to hold some quality stocks that are paying some good dividends, and you want to be able to just say to yourself, "i realize i'm going to have to ride out this period." >> reporter: as far as what stocks to buy, stovall likes consumer staples like walmart and general mills, because consumers will buy food in good times and in bad. he also likes industrials. >> our belief is that, because oil prices have been coming down and if there is a modest improvement in economic growth in 2011, then we could probably see some benefits to the industrial companies focusing on companies like general electric or northrop grumman. >> reporter: stock forecasts are often as unreliable as weather patterns. six months ago, wall street was betting 2011 would be a gangbuster year. while that seems unlikely now, it shows just how quickly expectations can change. erika miller, "nightly business report," new york.
>> tom: late today, the u.s. treasury department said secretary timothy geithner will not make any decision about leaving the obama administration until a deal is reached on raising the debt ceiling. the comment came after bloomberg news reported geithner was considering a return to private life after the debt ceiling is raised. >> susie: here are the stories in tonight's "n.b.r. newswheel." the federal reserve today wrapped up its government bond buying binge called "q.e. 2," the fed bought u.s. treasuries during this latest round of so- called "quantitative easing". but the central bank is still expected to spend $25 billion a month to replace the maturing debt on its books. standard and poor's detailed plans to cut uncle sam's credit rating if congress doesn't raise the debt ceiling. the ratings agency is prepared to strip the u.s.'s triple-a to "d", the lowest rating, if no agreement is reached by the august 2 deadline.
the greek parliament has okayed a tough new austerity plan. now, billions of dollars in loans can start flowing in from the european union and the international monetary fund. meanwhile, hundreds of thousands of public workers took to the streets in britain to protest pension cuts. their union is warning the one- day strike could be the beginning of a wave of strikes. still ahead, how best to invest over the next decade, especially with stocks sitting close to where they were ten years ago. new claims for jobless benefits fell by a thousand in the past week to 428,000. they haven't dipped below the 400,000 mark since april. and with many worried about a summer soft-patch for the economy, former president bill clinton is trying to boost job creation. this week, he's in chicago for his annual clinton global initiative. the goal-- bringing together leaders from businesses,
non-profits and government to brainstorm on how to get america back to work. former michigan governor jennifer granholm is one of those leaders at the event. she says businesses make decisions every day about where to locate, and if we want those jobs here in the u.s., we need to get busy. >> they're not going to places out of loyalty or staying here out of loyalty; they're going where they can maximize their profits. we have to decide, as a nation, whether we are going to partner to make conditions for them right, for them to make that kind of profit, so we have to partner in order to make it happen. >> susie: robert mccann, the head of ubs wealth management agrees. >> that kind of attitude is the attitude that we like, and i think that businessmen like and we want to be part of that. create the sandbox that we can play in and do what we do. we're the ones that create the jobs; they can create the environment from which we can create the jobs. >> susie: one idea coming out of the clinton conference-- a new
micro-lending platform aimed at helping small businesses grow. it's called kiva city, a non- profit that partners with cities to finance loans as small as $25. >> tom: a federal labor complaint against boeing can proceed. a federal judge today denied a request to throw out a lawsuit claiming the aerospace giant illegally retaliated against workers when it moved some work from washington state to south carolina. boeing has not commented on the ruling.
>> susie: if you're on facebook, someone has almost surely offered to send you a cow. now, the company responsible for that is said to be close to selling something far more valuable-- a stake in what could be a $14 billion business. zynga is the maker of "farmville", "cityville," and all the most popular games on facebook. it's expected to file for an initial public offering any day now. darren gersh looks at the real buzz behind this virtual cash machine. >> reporter: cityville is the place where facebook fans build a dream city, help their friends build cities, and then share each other's virtual worlds. social gaming giant zynga launched "cityville" last november. by january, the number of users hit 100 million. >> there has undoubtedly never been another media property in the history of the world that grew that fast. >> reporter: that's wedbush securities' lou kerner.
for years, serious gamers have been paying real money to buy virtual products like a better sword for their online avatar. kerner says what zynga did is take a small market for virtual products and make it a mass market. 275 million people play a zynga game every month, and millions of them pay real cash to buy the fake cash they need to play a game. kerner expects the market for virtual products will hit $10 billion in just a few years, as users spend more and more time online. >> they want their lives in those games to be better, and buying virtual goods improves their lives in those virtual worlds, just like buying goods in the real world improves your lives in the real world. >> reporter: satisfying the demand for virtual status has made zynga that rare social media company that actually makes money. greencrest capital's nitsan hargil estimates zynga's profit this year at half a billion dollars. >> of all of the companies that
we're seeing coming to market, this is really the most exciting by far. the company does have great revenues, great profits, and we foresee that continuing for the long term. they really have built a very, very strong and durable franchise. >> reporter: zynga is bigger than all of its competitors put together. but it's success rests on a friendly relationship with facebook. >> they have made serious attempts at branching out into other platforms and other operating systems, but have not had nearly as much success as they're having on the facebook platform, so that definitely is a drawback here. >> reporter: so far, zynga has been able to march out new games as quickly as interest in old one's fade. and that's why some on wall street expect this online social gaming empire will be worth more than $14 billion when zynga finally brings its virtual gold mine public. darren gersh, "nightly business report," cityville. >> susie: meanwhile tom, there's
word we may see a price on an i.p.o. from dunkin brands as soon as next week. "the boston globe" reports the parent of dunkin donuts will set terms of the offering then. certainly it's the time of a pretty strong market when are you seeing some of these companies decide to trap not public capital markets no doubt about it, let's roll as we wrap up the second quarter with tonight's market focus. the major stock indices close out the first half of the year with a four-day rally. today's buying was the strongest of the week so far. industrial stocks led the way. this industrial focused exchange traded fund has seen a nice rally this week. this is the past 90 sessions, but since last friday, it is up 4.5% as worries about greece's problems spiraling into other countries has lessened. heavy equipment maker joy global
was the strongest of the sector, up almost 6%. the rally takes joy up to its highest price since early may. a better than expected forecast for corn helped this sector. that report from the u.s. ag department also showed higher than expected corn inventories. this wghed on corn prices, sending it down by 10%. this is a record percentage drop. with a cold spring and then flooding, corn had rallied through early june when it hit $8 a bushel. the drop in corn prices had a mixed impact on agri-business stocks. it hurt fertilizer makers like cf industries, down 5%. seed giant monsanto continues it rally after rising its financial guidance yesterday-- shares added another 3%. and dow industrial stock component caterpillar added 3%. speaking for dow stocks, hewlett
packard was among the leaders, up more than 2%. h-p is among the worst dow stocks in the second quarter as it continues dealing with weaker p.c. sales and worries about higher costs. today, the company was subject to a reuters report that private equity investors want h-p to break up, arguing it is stretched too thin across computers, printers, services, cloud computing and other devices. here's the best and worst of the dow stacked up this quarter. american express and kraft were the leaders, up 14% and 12%, respectively. big banks-- j.p. morgan and bank of america-- brought up the rear, falling 11% and almost 18% since the second quarter began. b-of-a was the biggest loser in the dow today as well. the day after the federal reserve limited the fee banks can charge retailers for accepting debit cards, mastercard and visa dropped from their 52-week highs hit yesterday.
both shares were down more than 2.5%. but ebay kept rallying. a few analysts upgraded ebay, thinking it's paypal division will not be subject to the fee limit. watch shares of eastman kodak tomorrow. they lost only a penny during the regular session, but after the close tonight, they dropped as much as 12%, down below $3.20 per share. the company lost a patent dispute against apple and research in motion. also after the close, for-profit education company apollo turned in better than predicted results. fewer shares outstanding helped results as new student enrollment was down 40%. back in october, apollo stock dove.
and that's tonight's "market focus." >> tom: stocks ended the second quarter with some buying interest after a drop-off since may. but the s&p 500 index is still up less than 10% from where it was a decade ago. we recently spoke with larry swedroe, the director of research at buckingham asset management and author of "the quest for alpha." our first question, larry, how should investors approach the next decade of investing?
>> one lesson investors should have got is don't put all your eggs in one risk basket, u.s. large-cap stocks. you want to diversify across, and u.s. real estate was a great investment for in the last decade and international stocks including emerging markets. >> your book, quest for alpha, refers to that return that you try to get better than the benchmark. >> not the market but the -- does that kind of return exist year after year. >> i think it certainly exists. it's foolish, i think, to think that markets are perfectly efficient, with all the brainpower, ph.d, rocket scientists trying to find alpha, we'll probably find it but the problem is once you find mispricing they are very active exploiting it and money crowds into trades tends to make alpha disappear which is why as i present in the quest for all fat evidence whether we look at individual investors, pension plans, hedge funds, mutual funds, venture capitol, basically there is no persistence of that
performance beyond the randomly expected. >> which is not what investors want to here, randomly expected. your lessons, you mentioned one. another lesson that you talk about is stocks are risky and take that risk but don't take risk in bonds, in fixed income. why not? >> i think that that is the right way to look at it because for me the main purpose of fixed income and inn a portfolio is to dampen the old rising of the portfolio to an acceptable level. you don't want to known things like junk bonds, emerging market bonds, low grade corporate bonds, preferred stocks because their risk tends to show up at the same time that stock risks show up like 2008. junk bonds got hit hard. emerging market bonds also so just when you need the safety net to hold you up, instead it drags you down. >> and this gets to another lesson that you talk about which is diversify the assets. a lot of fieks hear about diversification but also buy location. and here we're talking about
go global, right. >> exactly. unfortunately the evidence shows that ef havers all around the world have a home country bias. my line is they confuse the familiar with the safe. i tell people try and take 50% of your assets, put it internationally. the u.s. today is down to about 42% of the global market but i think it's perfectly appropriate to have a small u.s. bias because international investments are a bit more expensive. >> it costs a little more to send your money overseas. finally you also talk about crises corelation, the get me out. when things go bad, lots of things go bad at the same time. even if you have an unexpected event like a war, a terrorist attack or something like that. >> especially when you have that kind of event. so diversification around the globe work only for patient investors,the very long term, at he decade i show ud you did. however in crises then all corelations tend to move towards one, for risky assets. but the safe assets, the kind i recommend you buy in
your bond portfolio, treasuries, very high-grade and municipal bonds, they actually went up in price to quality. >> is a decade long enough for a long term horizon. >> it's not even close to long enough. and stocks can do very poorly for very long periods. we went through a 40 year period where the s&p 500 basically matched the corporate long-term bond market. and japanese investor are now waiting more than 20 years and still the nikkhei is down over 75%. >> we appreciate the insight. thanks for sharing with us. larry swedroe of the buckingham asset management, author of "the quest for alpha" >> susie: here's what we're watching for tomorrow: auto makers release vehicle sales for june, and the commerce department is out with construction spending for may. also, despite the turmoil in greece and the debt ceiling debate, our "market monitor" is bullish on both the economy and the stock market. he's john dorfman, chairman of thunderstorm capital. lee farkas, the former chairman
of what had been one of the lee farkas, the former chairman of what had been one of the nations largest private mortgage lenders, has been sentenced to 30 years in prison for his role in a $3 billion fraud scheme. prosecutors say the fraud at taylor, bean and whitaker contributed to the collapse of colonial bank, the sixth-largest bank collapse in u.s. history. today in court, farkas did not apologize, but he did acknowledge taking risks. >> tom: beginning tomorrow, health insurer humana will not hire smokers at its arizona facilities. existing humana employees in arizona who do smoke have been encouraged to join a program to help them quit. the company picks up the tab. those who join the program or who do not smoke will receive discounts on their health insurance.
>> susie: if you have a kid in college or about to start, tonight's "kids and cash" has some tips on keeping your student debt-free. here's neale godfrey, c.e.o. of the children's financial network. >> the mere words "off to college" and "credit cards" should give you goose bumps. the scary news is that half of
all college kids have four credit cards, and will graduate with over $4,000 of credit card debt and $20,000 in student loan debt. this debt load means that 18- to 24-year-olds will spend almost 30% of their monthly income solely on debt repayment. now for the good news! most college students admit they need more financial education, so teach them. the beginning of any financial arrangement is always a budget. simply, a budget is a description of money in and money out. as a parent, you have some control over the money in, especially if you're supplying it. but in most cases, your child will control spending the money out. if you haven't started money lessons yet, it's never too late. i call this process my "no magic money log." it's no magic where your money went-- you spent it. have your kids carry file cards to write down everything they've spent money on. this way, they can really decide what they need as opposed to what they just want. go through the list with your student and build a real budget. it should include things such as phones, internet, food, entertainment, and transportation. books and clothes may be one-
time expenses. let them report their budget to you on a monthly basis. the more responsibility they have, the more they'll own their budget, and hopefully this will help you get a good night's sleep. >> tom: first football, now basketball. what could be a long, indefinite nba lockout begins tonight. league commissioner david stern and a representative for its players association held a three-hour meeting today in a last-ditch effort to avoid a lockout. but the session ended without a new collective bargaining agreement for the upcoming season. the union said the nba plans to lock out its players later tonight. >> susie: and finally, the markets are closed monday, the 4th of july, but we'll be here with a special program. we take a closer look at a company that's been in business for more than 200 years, dupont. it began as a manufacturer of gunpowder in 1802. these days, it's evolved into a fortune 500 science company with $32 billion in revenues. we profile current c.e.o. ellen
kullman and ask her what it's like being at the helm. >> i think that we've tackled the problems in the global financial crisis. i think we've come through it very strongly. you know, i get all the credit now, right? i'll get all the blame if it goes the other way as well. >> susie: she also talks about being the company's first female c.e.o., maintaining work-life balance, and the importance of keeping science at dupont's forefront. join us monday for our special edition, "women in leadership: dupont c.e.o. ellen kullman." and tom, before we go, we also wanted to mention, starting tomorrow, viewers in central florida can watch "nightly business report" weeknights at 6:30 on wucf-tv. that's it for us tonight. thanks for watching. i'm susie gharib. tom, have a great night. >> tom: good night, susie. i'm tom hudson. good night. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: